Impact of Climate on Energy Sector in Economic Analysis

Abstract

Assessments of economic conditions by region or sector attempt to include relevant climatic variability through residual adjustment techniques. There is no direct consideration of climatic fluctuations. Three recent severe winters combined with the increasing price of energy have intensified the need to quantify the interaction of climate with the energy sector of the economy. This paper presents examples of the uses of climatic data by utilities, public service commissions and the NOAA Center for Environmental Assessment Services to determine econoclimatic energy relationships at the local, state, regional and national levels. A technique based on the linear relationship between heating degree days and natural gas consumption for space heating is used to quantify the interaction of climate and prices on gas consumption. This provides regional estimates of the response of gas consumption to degree days and price. Climate alone does not explain all of the variations in energy consumption. Price and seasonal adjustments are necessary, as are considerations of the various classes of consumers. However, in any assessment of our economy it is critical to account for fluctuations due to known causes such as climate.